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Health, Accident , and Retirement Benefits

Section 4

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Health Insurance Plans

Traditional Health Insurance Fee for service arrangement

HMO – Health Maintenance Organization Go to HMO facilities for medical care Select from a pool of doctors who are members of the HMO

organization

POS – Point of Service Select a primary care physician Allows access to non-HMO health care facilities

PPO – Preferred Provider Organization Lower cost if using network doctors Higher cost if using out-of-network doctors

Health Insurance PlansACA Affordable Care Act

ALE – Applicable Large Employers Average number of employees in a year over 50 or more Provide minimum essential coverage or be penalized Full time versus part time 2015 must offer coverage to 70% of those eligible employees 2016 must offer coverage to 95% of those eligible employees

Additional reporting required for 2015 submit in early 2016 6056 Informational Return

Reports on each full-time employee for one or more months during the calendar year certain information on coverage offered.

Proposed forms 1095C and 1095B Reporting times are the same as W2 nd W3 Penalties for failure to file similar to W2 penalties

Employer Notice to Employees Notice of coverage and of availability of Markepplaces

Due to employee by October 1, 2013

Health Insurance Plans - W-2 ReportingW-2 Reporting of Cost of Employer-Provided Health

Coverage Reported in W-2 Box 12, using code DD

Calculating the Reportable Cost of Coverage Premium charged method

Amount charged by the insurer for an employee’s coverage COBRA applicable premium method

COBRA applicable premium amount s for coverage provided Must satisfy requirements of IRC 4980B(f)(4)

Modified COBRA premium method May be used when the Employer subsidizes the cost of

COBRA

Health Insurance PlansTax Treatment of Plan ContributionsEmployers with no section 125 plan who give employees a

choice between receiving a portion of their wages as compensation or having the amount paid to cover health insurance premiums must include the amount in the employees income.

If an employer reduces an employees salary and uses those amounts to pay for health insurance premiums and then reimburses the employee for the amount of the reduction, the employer must include these amounts in the employees income.

Employer contributions are generally excluded from the employees income

Employee contributions are included in income unless the contributions are made through a valid salary reduction plan under IRC 125

Health Insurance PlansTax Treatment of Plan Contributions

Mandatory salary reduction contributions by current employees to pre-fund a trust created by their union to pay for health insurance coverage for retired employees are excluded from the current employees income under IRC 106.

Employee accident or health insurance plan benefits received from an employer as direct or indirect reimbursements for medical expenses are excluded from the employees income. The employees expenses must be for medical care as defined by IRC 213.

Health Insurance PlansTax Treatment of Plan ContributionsAny reimbursements received in excess of the

medical expense are included in the employees income.

Employer health insurance benefits provided through a third party insurance company have no nondiscrimination requirements. The plan may be tailored to favor highly compensated employees.

Health insurance benefits provided from an employer that is self-insured and reimburses its employees’ medical expenses from its own funds may not discriminate in favor of highly compensated employees. If the plan is discriminatory, amounts paid to highly compensated employees must be included in the income.

Section 125 Cafeteria Plans A cafeteria plan, as defined in Section 125 of the Internal Revenue

Code, is a plan in which all participants are employees who choose from a minimum of two or more benefits that consist of cash and qualified benefits.

Qualified Benefits include: Accident and Health plans Dependent care assistance programs Group-Term-Life insurance Short –Term or Long-Term disability coverage Health Savings accounts Elective contributions to a section 401(k) plan Elective vacation days Cash Flexible Spending Accounts Adoption Assistance

Section 125 Cafeteria Plans

Benefits not permitted in a Section 125 Pan

Educational Assistance plans Scholarship and fellowship grants. Rides in commuter vans De minimis fringes No- additional-cost services Employee discounts Working Condition fringes Deferred compensation arrangements (except a qualified

401(k) plan, Health Savings Accounts, and Flexible Spending Accounts)

Qualified transportation fringe benefits

Section 125 Cafeteria Plans

Flexible Spending Accounts

Funded by either Flex dollars or Flex credits (employer contributions)

Generally, employees must make an irrevocable benefit election before each plan year begins. Changes during the plan can be made only under limited circumstances.

Employer contributionsExcluded from employee’s incomeNot subject to federal income tax withholding or employment

taxesPre-tax contributions

Excluded from employee’s incomePost-tax contributions

Included in employee’s income, however, benefits received are not

Section 125 Cafeteria Plans

Nondiscrimination Testing

The plan must not discriminate in terms of eligibility, contributions, or benefits in favor of highly compensated individuals, or participants, or key employees.

A plan that is discriminatory in favor of highly compensated individuals , employees, participants, or key employees are not disqualified and do not have negative tax consequences for other participants. But those highly compensated participants and key employee participants lose the tax benefits of the plan.

Special Health Benefits Test. Concentration Test

Section 125 Cafeteria Plans

401(K) planPre-Tax contributions are not subject to federal income

tax withholding , but are subject to FICA, MED, and FUTA

Cash received instead of selecting benefitsSubject to federal income tax withholding as well as all

employment taxes.

Long Term Care Insurance

Generally treated as accident and health insurance contracts

Benefit amounts received are excluded from incomePer Diem Payments

Capped at $330 per day or $120,450 annually (2014)Long Term Care coverage is not subject to COBRAIs not a qualified benefit that can be offered as part of a

cafeteria plan under IRC 125Long term care coverage that is provided as part of a

flexible spending arrangement is included in the employee’s gross income.

COBRA Health Insurance Continuation(Consolidated Omnibus Budget Reconciliation Act of 1985)

COBRA applies to employers with 20 or more employees on a typical business day

The purpose of COBRA is to allow qualified beneficiaries the opportunity to elect continued group health for specified periods of time under specified qualifying events

Qualifying Event Death of the covered employee; The covered employee’s termination of employment (for reasons

other than gross misconduct) or reduction in hours worked; Divorce or separation of the covered employee; Entitlement of the covered employee to Medicare benefits (upon

enrolling in the program); A dependent child losing that status; and Bankruptcy proceedings that cause a retired covered employee

or the employee’s dependents to lose coverage.

COBRA Health Insurance Continuation (Continued) Duration of Continuation

Termination or reduction of work hours – 18 months (24 months if the reason for absence is military service)

Beneficiary is disabled – 29 months Death, divorce, separation, loss of dependent child status or two

or more qualifying events – 36 monthsPremium Requirement:

102% of health care premium rate. The 2% is allowance for additional administrative costs.

Up to 150% of premium cost for qualified disabled dependents from the 18th up to the 36th month of coverage

Coverage Election The election period begins the day the previous coverage

terminates The election period lasts 60 days from that time (no longer)

ARRA 2009 COBRA premium subsidy ended May 31, 2010

Family and Medical Leave Act

Applies to employers with 50 or more employeesGuarantees employees:

12 weeks of unpaid leave in a 12 month period. Continuation of health benefits while on leave – employee is

responsible for premiums during leave (may be required to pay entire premium, not just EE portion

Eligibility Employed for at least 12 months (can be non-consecutive) Has worked at least 1250 hours within previous 12 months Expatriates are not covered – employees must work within the

United States or any of its territories and possessions.

Family and Medical Leave Act

Employees returning from leave are entitled to their previous job or one that is equivalent with no loss of pay or benefits accruing before the leave.

Sick Pay

Essential purpose is to replace the wages of an employee who cannot work because of an illness or injury.

Sick Pay under a Separate Plan Short Term Disability Long Term Disability Third Party Sick Pay

How much is taxable? Any benefits provided that are attributable to employee after

tax contributions are not taxable to the employee. Benefits that are attributable to employer contributions or to

employee pre tax contributions through a cafeteria plan are taxable income to the employee.

Sick PayHow much is taxable?

Where the employer and employee both contribute to the premiums for a disability plan, the taxable portion of benefits received is the amount attributable to the employer-funded portion of the premiums.

Where the employer and employee both contribute to a group insurance policy, special rules apply to determine the amount of benefits included in the employees income. If the employer knows the net premiums paid for at least three policy years, the formula for calculating the taxable portion is as follows:

EE’s sick pay x employer-paid premiums for last 3 years Total premiums for last three years

See IRS Pub. 15-A

Sick Pay

Social Security, Medicare, and FUTA taxes do not apply to amounts paid under a definite plan on or after the termination of the employment relationship because of death or disability retirement.

Sick pay paid to the employee's estate or survivor after the calendar year of the employee's death is not subject to Social Security, Medicare, or FUTA taxes.

Sick pay paid to the employee's estate or survivor at any time after the employee's death is not subject to federal income tax withholding, regardless of who pays it.

See IRS Publication 15a

Sick Pay - Responsibility for income withholding and employment taxes

Payments made by employerEmployer self-insured

Withhold federal income tax based on the employees most recent W-4.

The employer must also pay it’s share of FICA, MED, and FUTA tax and withhold the employee’s share for all payments made within 6 calendar months after the end of the last month during which the employee worked for the employer.

Sick Pay - Responsibility for income withholding and employment taxes

Payments made by employers agent The employer pays the third party agent on a cost-plus-fee

basis but retains the insurance risk.

Payments are treated as if made by the employer.

The third-party agent may treat the payments as supplemental wages and withhold federal income tax at the flat rate of 25%. The employer retains responsibility for FICA, MED, and FUTA withholding and payment unless it enters into an agreement with the agent to be responsible for employment taxes.

Sick Pay - Responsibility for income withholding and employment taxes

Payments made by a third party who is not an agent Employer contracts with a third-party to make disability

payments and the third party bears the risk of insuring the employees. Third party receives premiums from the employer. The third party is not required to withhold federal income tax from employee payments unless the employee requests a certain amount be withheld by furnishing the third party with form W-4S. If the employee provides a W-4S the third party must begin withholding with the first payment made at least 8 days after the form is provided. Form W-4S allows the employee to request a flat dollar amount to be withheld. The minimum withholding is $20.00 per week and after withholding the employee must receive at least $10.00.

If a payment is smaller or larger than the regular payment then the withholding changes by the same proportion as the payment.

Sick Pay - Responsibility for income withholding and employment taxesPayments made by a third party who is not an agent

The third party must also withhold and pay the employee’s share of FICA and MED for each payment within 6 months after the end of the last month the employee worked for the employer.

The third party is also responsible for the employer’s share of FICA, MED, and FUTA unless it transfers liability back to the employer.

Sick Pay

Permanent Disability Payments Subject to federal income tax withholding by the party making

the payments to the extent the employer paid the premiums or the employee paid the premiums with pre-tax dollars.

Workers’ compensation insurance Payments received by the employee are not subject to

withholding or employment taxes. Payments must be for injuries suffered on the job.

Questions ?

RETIREMENT BENEFITS AND DEFERRED

COMPENSATION PLANS

Section 4

Retirement and Deferred Compensation Plans

401(a) - Qualified Pension & Profit Sharing PlansDefined Benefit Plans , Defined Contribution Plans

401(k) - Cash or Deferred Arrangements403(a) or 403(b) - Tax-Sheltered Annuities457 - Deferred Compensation Plans – Public Sector and

Tax-exempt groups501(c)(18)(D) - Employee Funded PlansIRA - Individual Retirement Accounts408(k) – SEP - Simplified Employee Pensions408(p) – SIMPLE Plans - Savings Incentive Match Plans

for Employees of Small EmployersESOP - Employee Stock Ownership PlansNonqualified Deferred Compensation Plans

•Defined Benefit Plan– Payroll Dept Responsibilities. Maintain records of hours worked, compensation earned, and dates of birth and hire.–Employee benefit based on employee’s age, compensation level, and years of service –Plan formulas are geared to retirement benefits and not contributions–Annual Compensation Limit for 2012 = $250,000–Annual benefit limit for 2012 = $200,000

•Defined Contribution Plan–Individual Accounts–Contribution by Employer–Contribution by Employee (but not always)–Annual Compensation Limit for 2012= $250,000–Annual Contribution Limit = The lesser of $50,000 or 100% of the employee’s compensation for the year (up to the annual compensation limit).

401(a) Profit Sharing Plans

Profit Sharing PlansAllows employees to participate in company profitsDiscretionary contribution based on a selected

formula by employerDefined contribution plan only

Plan Type

Annual Deferral Limit

Annual Catch up Limit

Annual Compensation Limit

Annual Contribution Limit

W-2 Box 12 Code

401(k) $17,500 $5,500 $260,000 $52,000 D

403(b) $17,500 $5,500 $260,000 $52,000 E

457(b) $17,500 $5,500 $260,000 $52,000 G

501(c) $17,500 $5,500 $260,000 $52,000 H

IRA Generally $5500 – Based on AGI

$1,000 Phased – see 4-126 $5,000

408(k)

SEP

$17,500 $5,500 $260,000 $52,000 F

408(p)

Simple

$12,000 $2,500 $260,000 S

ESOP The lesser of 100% of annual comp. or $52,000

Amounts to Remember for 2014

•Employee contributions are pre tax and not subject to income tax but are subject to employment taxes(FICA, MED FUTA)

•Contributions, as well as money earned from investing them , are not subject to income tax until they are withdrawn

•In addition to employee contributions, employers may contribute matching amounts. Employer matching amounts are not subject to income or employment tax.• Early distribution penalty equal to 10% excise tax

•Public Schools, Tax Exempt Charities, Religious, Educational Organizations•Contribution limits set by the economic growth and tax relief reconciliation act (EGTRRA)•Employee contributions not subject to Federal Income Tax but are subject to employment taxes.•Special provision for employees over 15 years of service (can exceed the maximum elective deferral amount)•Additional information available – IRS Publication 571

•Eligibility – Only individuals performing services for the employer (including independent contractors)•No discrimination testing•EGTRRA Limits•Contributions placed in tax exempt trust for employees and beneficiaries•Distributions cannot be made before employee reaches 70 1/2 years old, separation of employment (retirement) or employee has unforeseeable emergency. •Employee contributions not subject to Federal Income Tax

•EGTRRA Limits•Employee contributions not subject to Federal Income Tax•Defined contribution plan•Solely funded by employee contributions•Maximum deferral limit is reduced by other cash or deferral arrangements (CODAs) maintained by the employer

•EGTRRA Limits•After tax amount deductible based on participation in other plans•Deductibility based on Adjusted Gross Income •Employer contributions included in income, but not subject to federal income tax•Defined Benefit or Defined Contribution Plan•Usually direct deposit contributions – not payroll deductions•Can be SIMPLE plan•ROTH IRA

–Contributions are not deductible from income–Distributions are not included in income if certain criteria is met

•Employer’s who cannot provide traditional plans•Is an IRA•Employer must make contribution to plan on behalf of employee based on guidelines

–21 years of age–Worked for employer 3 out of last 5 years–Earned at least $550 in 2012

•Salary reduction agreements limited to EGTRRA•Employees can elect a salary reduction agreement if plan was setup before 1997.

•Small Business Job Protection Act of 1996

•Must allow eligible employees to participate

–Employer with no qualified retirement plan and less than 100 employees

–Received at least $5,000 in compensation during any 2 prior years

–And expect to receive $5,000 in current year

–EGTRRA Limits

•Fully vested at time of contribution

•Non-Discrimination testing

•EE’s must have 60 days before year begins to make changes to contribution

•Not subject to Federal Income Tax

•Must meet 401(a) requirements–Participation–Vesting–Non discrimination

•ESOP buys stock with employer contributions or borrowed / leveraged funds

–Designed to invest primarily in employer’s stock•Value of employee account changes based on stock value •Not subject to federal income tax or FICA, MED, or FUTA

Nonqualified Deferred Compensation Plans 409(a)

An employer plan designed to defer compensation until a later date and that does not meet the requirements of IRC 401(a)

Plan can be Funded or UnfundedFunded – Employer makes contributions to the

plan Subject to Federal Income tax Withholding when the

employee’s interest is vestedUnfunded – Employers promise to make

payments at a latter time Not subject to Federal Income Tax Withholding until

the payments are made

Nonqualified Deferred Compensation Plans 409(a)Most nonqualified deferred compensation plans are

unfunded.Amounts deferred are subject to federal employment taxes

(FICA, MED,FUTA). W-2 Box 3, 5Amounts paid that were deferred in a prior year are subject

to federal income tax withholding. W-2 Box 1

W -2 Reporting RequirementsMSA – Box 12 – Code RHSA – Box 12 – Code WNon-taxable Sick Pay – Box 12 – Code JDependent Child Care – $5000 - Box 10Adoption Assist - $12,650 – Box 12 – Code T401(k) – Box 12 – Code D403(a) or 403(b) – Box 12 – Code E457 – Box 11 or Box 12 – Code G501(c) – Box 12 – Code H408(k) – Box 12 – Code F408(p) – Box 12 – 401(k) = Code D, IRA = Code

S409(a) – Box 12 – Code Y or Z